George L. Ball, former president of E. F. Hutton & Co., testified yesterday that he was unaware of the excessive check overdrafts that led to the broker-dealer's guilty plea in May to 2,000 felony fraud charges.
"It wasn't in my baliwick," Ball, now chief executive officer of Prudential Bache Securities Inc., told the House Judiciary subcommittee on crime. "I was not aware of any improprieties . . . . I had no knowledge of, nor responsibility for" the abuses that reaped millions of dollars in interest income for Hutton in the 2 1/2 years ended in February 1982.
"I must say I find some of your testimony incredible in some areas," subcommittee Chairman William J. Hughes (D-N.J.) told Ball. But Ball's attorney, former White House counsel Lloyd N. Cutler, said after the two-hour hearing, "What Ball said was true, is true."
Subcommittee members said repeatedly that they could not grasp how an activist president and director could have been unaware of pervasive, routine check-kiting by the very branch offices he was exhorting, in a stream of what Ball yesterday called "rah-rah" directives, to increase their interest income.
Hughes produced two memos showing Ball being concerned with minutiae even though he said he was not aware that the firm was obtaining some of its income in the form of interest-free loans.
In one memo, Ball vetoed the hiring of a messenger. In the other, on June 14, 1982, he responded to a subordinate's complaint that $9.35 had been spent to deliver certain papers that could have been "sent by regular mail." Ball attached a response saying, "I quite agree. What in the world are we doing?"
Turning to the issue of branch profitability, Hughes introduced a memo dated Feb. 25, 1982, from Ball to an executive in Hutton's central region. Listing "my perceptions of the performance of each of your offices," Ball rated five as "excellent": Alexandria, two in the District of Columbia, Baltimore, and Louisville.
The example set by these branches "demonstrated that strong leadership and determination can overcome even the most adverse conditions," Ball told the executive, John Latshaw. "Please do everything possible to get your lagging branches to emulate them."
Each of the five was named in the 2,000 indictment counts. In November 1981, the Justice Department charged, for example, the Alexandria branch overdrafted its United Virginia Bank checking account by an average of $9 million a day.
Hughes asked Ball what he was asking Latshaw to do. Ball said he was asking that the lagging branches achieve "a bottom line as good as" that of the excellent branches -- but not through "excessive or illegal overdrafting."
Hughes responded that he could not see how Ball could not know how profits were being generated while discharging "your responsibility as president to generate profits."
A few weeks after writing to Lawshaw, Ball received an analysis, produced at the hearing, showing interest income in the central region to be 478.3 percent higher than the average for all 10 of the regions combined. A footnote offered an explanation of the central region's "high" interest earned on "overdrafting." Ball, apparently puzzled, circled the 478.3 percent figure and wrote, "Too much; has to be wrong."
Ball also pointed out to the subcommittee his comment on the analysis in a note to chief financial officer Thomas P. Lynch: "seems very aggressive. Who was calling the shots, and were the shots well called?" Ball testified that this was one of four or five cases in which his suspicions were aroused, but conceded that Lynch did not respond and that Ball hadn't followed up.
In an earlier memo, dated April 1980, Ball was told that Hutton's branch in Casper, Wyo., had earned $24,400 in interest income in March, "almost entirely due to BOA [Bank of America] drafts and overdrafting." Ball said yesterday the memo "did not raise any red flags at that time."
Hughes responded that the overdrafting had to be at a rate of about $2.4 million "every day for 30 days."
Another dispute involved the word "overdraft," which appears in several memos by and to Ball. Ball said he understood it to mean simply that before a bank had cleared a Hutton deposit, Hutton wrote a check on it and deposited it in another bank.
"I had no idea you could pour more water out of the glass than was there in the first place," Ball said.
Rep. E. Clay Shaw Jr. (R-Fla.) said the definition in a legal dictionary is that a check is written for a larger sum than is in the account. Hughes said that Ball's definition in "no way, no way," could have yielded the millions of dollars Hutton made on its check-kiting scheme.